At a meeting of the California Bar Association’s Tax Exempt Organizations Committee last Friday, the issue of the California Franchise Tax Board (“FTB”) revoking an organization’s state tax-exempt status for failure to timely file a Statement of Information with the California Secretary of State was raised. Several representatives of the FTB present at the meeting confirmed that failure to timely file a Statement of Information with the Secretary of State or a Form RRF-1, Annual Registration Renewal with the California Attorney General’s Registry of Charitable Trusts after the appropriate notices have been given by those agencies will generally result in reporting the organization as suspended to the FTB. The FTB will then send out a notice of suspension or forfeiture to the organization indicating that it will suspend the organization if it fails to comply within 60 days (see, generally, FTB’s website).
According to the FTB representatives present at the meeting, if an organization is suspended because it fails to take steps to comply with any requirements leading to suspension in a timely manner, the FTB may revoke its state tax-exempt status. In order to reinstate its tax-exempt status, the organization will be required to file the full Form 3500, even if it was not required to file Form 3500 to obtain exemption initially. Moreover, the organization may be subject to income tax or the $800 minimum franchise tax for any period in which it is operating without exempt status if it is not able to reinstate its exemption retroactively.
Although the automatic revocation of state exemption for failing to file an annual return for three consecutive years (and the corresponding IRS regulation regarding automatic revocation of federal exemption) is widely known, this was the first we had heard of the FTB’s policy regarding revocation of state exemption for failure to file a Statement of Information or Form RRF-1. The FTB has agreed to further discuss this policy at the next meeting of the Committee and we will update this post with any further information we receive.